The biggest problem facing the housing market is still the large amount of stubborn shadow inventory. The fact that this figure remains elevated is a sign that the banking system after all these years and trillions of dollars in bailouts has yet to figure out a streamlined way to unload properties. The Federal Reserve is trying to grease the wheels with historically low mortgage rates but that has done very little since this does not address the weak economy. At the latest count there are 6.54 million loans that are either delinquent or in the foreclosure process. This figure hasn’t really moved much for the entire year. Properties have been sold from the REO (bank owned) pile but this is the tiny chunk of properties that is covered by the mainstream news and also that appear in public listing services. As we will show in charts later in this article, only examining this piece of the real estate pool is like seeing the tip of an iceberg and thinking there is nothing underneath it submerged in the water.

To break down the figures even further you have 2.48 million loans that are less than 90 days delinquent (3 missed payments), 1.9 million loans that are 90+ days delinquent (more than 3 missed payments), and 2.16 million loans already in the foreclosure process. In total, this adds up to over 6.54 million loans in the distressed pipeline and this is what I would categorize as the shadow inventory. As the chart above highlights, only about 500,000 properties are actually real estate owned and show up for sale in local MLS data (and not all REO show up but a lot do). The cure rates are abysmal on many of the loans and many are underwater to levels that will never cure on these properties. In fact, the latest data shows that the typical foreclosure process timeline is now up to a stunning 599 days!